The Price of Gas and Your Next New Car

Within the context of buying a new car or truck, people often ask me whether I think gasoline will be $4 a gallon or $5 a gallon soon. In case you have the same question, here is the general answer I give them:

Oil is being depleted steadily while demand worldwide continues to rise. There are no indications currently that any new oil reserves in any significant amounts will be suddenly available in the future. There are no indications currently that demand for oil will do anything except increase dramatically in the next 20 years.There may be hiccups in the price of oil that manifest themselves as price plateaus such as the one we had recently, but the long-term forecast is for oil prices to continue their steady trajectory upward over at least the next two decades. Oil prices will drop when there is less demand for oil. That condition is extremely unlikely in the foreseeable future. You should prepare yourself for higher oil prices, and therefore higher retail prices of gasoline until substitutes are found for one or both. To not prepare yourself for this pricing environment is to delude yourself.

So, the summing up is this: If you’re in an income range where it doesn’t really matter how much gasoline costs, then buy whatever you wish without regard to future price increases. If you are in an income range where paying $4 a gallon of gas would take up too much of your after-tax income, then I would suggest you do the math based on gasoline being $5 a gallon (it’s not that unlikely within the service life of the vehicle) and buy what you can afford to buy gas for at that price per gallon.

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.